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Bear of the Day: Tata Motors (TTM)

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It’s a difficult time for many automakers. Slowing global demand, competition from ride-sharing services and tariff issues on parts and supplies and finished products have put the squeeze on revenues and profits.

India’s largest carmaker, Tata Motors (TTM - Free Report) has certainly been feeling the pain lately. Traded as an ADR on the New York Stock Exchange, Tata traded as high as $43/share in 2016, yet shares now languish just barely in the double digits at $11.50/share.

Tata manufactures a wide range of passenger cars and light trucks as well as larger commercial vehicles throughout the world. English brand Jaguar Land-Rover is a wholly owed subsidiary of Tata.

The company’s declining performance - highlighted by big earnings misses in the past two quarters - has investors turning their backs on the shares even though the company operates and sells vehicles primarily in one of the world’s fastest growing markets.

In the most recent earnings release, the company cited challenging market conditions in China where demand has been impacted by duty changes and escalating trade tensions with the US. They also noted disappointing sales of sedans in the North American marketand weak demand for the company’s diesel vehicles in Europe as a result of emissions regulations and fuel taxes. They even cited currency uncertainty due to the Brexit situation.

Chairman Natarajan Chandrasekaran explained, "Market conditions, particularly in China have deteriorated further. To weather this volatile external scenario, we have launched a comprehensive turnaround plan to significantly improve our free cash flows and profitability.”

Analysts are skeptical however.

Revenue estimates for the current year are expected to decline 5% from the previous year but a slew of recent negative revisions now have the Zacks Consensus earnings estimate at $1.24/share, a whopping 47% lower than 2017.

That estimate had been $2.47/share just 60 days ago.

Tata is a Zacks Rank #5 (Strong Sell).

Rising costs have eviscerated gross margins at Tata and on Thursday they announced, presumably as part of the turnaround plan, that they would institute a series of across the board price increases.

Attempting to raise prices to bolster revenues in a weak market is a risky strategy.

Competition is fierce – especially in China – and selling the same products at increased prices could easily backfire and hurt customer demand.

Tata is unfortunately on the wrong end of many political and regulatory issues around the globe. Investors who want to own part of the future of automotive transportation would be better off considering Tesla (TSLA - Free Report) , a Zacks Rank #1 (Strong Buy).

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